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  3. American Economic Journal: Applied Economics
  4. October 2022
  5. The Round Trip Effect: Endogenous Transport Costs and International Trade

The Round Trip Effect: Endogenous Transport Costs and International Trade

  • Woan Foong Wong
American Economic Journal: Applied Economics
vol. 14, no. 4, October 2022
(pp. 127-66)
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Abstract

Container ships travel between a fixed set of origins and destinations in round trips, inducing a negative correlation in their freight rates. I study the implications of this round trip effect on international trade and trade policy. I identify this effect and develop an instrument using it to estimate the impact of transport costs on trade. I simulate counterfactual import tariff increases in a quantitative model and quantify the importance of endogenizing transport costs with respect to this effect: an exogenous transport costs model predicts a trade balance improvement from protectionist policies, while the round trip model finds the opposite.

Citation

Wong, Woan Foong. 2022. "The Round Trip Effect: Endogenous Transport Costs and International Trade." American Economic Journal: Applied Economics, 14 (4): 127-66. DOI: 10.1257/app.20190721

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • F13 Trade Policy; International Trade Organizations
  • F14 Empirical Studies of Trade
  • L92 Railroads and Other Surface Transportation
  • R41 Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
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